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NOTICE TO RESIDENTS OF MARYLAND

We are NOT affiliated with the State of Maryland. If you are looking for information about Maryland income taxes, please go to www.marylandtaxes.com.


Useful Links:

FindAGoodCPA.com - Not a healthcare professional?  Find a CPA or EA who understands the tax issues specific to you.

Nanny Taxes - Find out what's involved with complying with the Nanny Tax Rules

IRS Web Site - for tax forms, publications, and general tax information.

Exchange Authority - New England's first authority for IRC 1031 Exchanges

Cost Segregation Studies - Accelerate tax depreciation deductions on new and existing buildings through cost segregation studies

Social Security - find out the latest rules or your projected retirement benefit.

The Company Corporation offers fast, reliable & affordable incorporation and LLC services.


MONTHLY TAX NEWSLETTER

July 2014

SCHWARTZ UNCOVERS METRIC THAT IS A 79% PREDICTOR OF GROSS REVENUE FOR GENERAL DENTISTS

by Andrew D. Schwartz, CPA

The numbers are in.  Based on data collected from 60 general dental practices in the Greater Boston area, we calculated (with the help of Microsoft Excel) that the number of individual patients treated by an office in a calendar year is a 79% predictor of that practice's gross collections.

Just to be clear, this metric is not based on the total number of patient visits during the year.  Instead, this metric compares the gross revenue of the practice with the number of unique individuals who were treated at least one time by that practice over a twelve-month period of time .

Below is a graph of our 2013 data with the x-axis showing the number of unique patients treated during the year and the y-axis showing gross annual collections.  Please note how closely most data points hug the trend line.

# of Individual Patients Treated in 2013 vs Annual Collections:

 

Gathering the Data:

Depending on the practice management software used, determining how many individual patients were treated by an office sounds easier than it actually is.

  • For Patterson's Eaglesoft, simply generate the Patients Analysis Report, and the number of patients treated during the prior 12 months is printed on top of the second column.
  • For Schein's Dentrix, the Practice Statistics Report displays the total number of patients in the system who are not marked as inactive. Same holds true for EZ Dental's Practice Demographics report.  The Dentrix FAQS suggest to use the mailing list function to figure out the number of individual patients treated during the prior year.  (From Office Manager, select Letters, Misc, Patient Report by Filters, and Edit.  All filters should be empty.  Then click on the Procedures filter, click Completed on top in the Search For field, and put the dates 1/1/13-12/31/13.  Create the Data File only, then View List, and copy that list to Excel and see how many rows there are on the spreadsheet.)
  • For the increasingly popular Open Dental, go to the Report FAQS, and you should be able to easily locate the 3 or 4 lines of code to put in the Custom Report generator.  Just be sure to fix the dates before hitting the Create Report button.   

Improving Practice Collections:

Now that we know that the number of unique patients treated each year at your office is a 79% predictor of your practice revenue, here are some steps you can take to maximize collections:

  • Keep your current patients happy.  It's usually easier to keep a patient coming back than to replace patients that left your practice due to a poor experience. 
  • Bring in new patients.  This is easier said than done in most cases, but find ways to generate referrals from your existing patient base and/or commit to a proven method of advertising that works for you.
  • Try to Reactivate patients who haven't been to your office during the past year but have come in for treatment within the prior 2-3 years.
  • Consider using a program such as Smile Reminders, Lighthouse 360, RevenueWell, or Demand Force to keep your patients more engaged and informed.  
  • Read 1-800dentist founder Fred Joyal's book, Everything is Marketing: The Ultimate Strategy for Dental Practice Growth.
  • Institute a Simplified Incentive Bonus System to reward your staff for growing the number of patients treated in the office over the calendar year. (Check out our great video on Simplified Incentive Bonus Systems.)

"Million Dollar Metrics" for General Dentists:

For information on our ten "Million Dollar Metrics" for general dentists, check out our September 2013 newsletter or watch our informative YouTube video.

And if you'd like to set up a time for me to help you figure out these ten metrics for your practice, please do not hesitate to e-mail me that request.  We'd really appreciate the opportunity to help you gain some insight on the performance metrics for your practice.

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SPRING 2014 STATISTICS OF INCOME BULLETIN NOW AVAILABLE

IR-2014-69, June 2, 2014

WASHINGTON — The Internal Revenue Service today announced the spring 2014 issue of the Statistics of Income Bulletin is now available, featuring information on high-income individual income tax returns filed for tax year 2011. 

Taxpayers filed almost 5 million returns with adjusted gross incomes of $200,000 or more for 2011, up over 9 percent from the prior year. These high-income returns represent about 3 percent of all returns filed for the tax year.

The Statistics of Income (SOI) Division produces the SOI Bulletin on a quarterly basis.  Articles included in the publication provide the most recent data available from various tax and information returns filed by U.S. taxpayers. This issue of the SOI Bulletin also includes articles on the following topics:

  • Individual Income Tax Rates and Shares, 2011: Of the 145 million individual tax returns filed in tax year 2011, almost 92 million were classified as taxable returns or returns with a total income tax greater than $0. Adjusted gross income (AGI) for taxable returns was nearly $7.7 trillion, up 6 percent from the prior year. Total income tax was more than $1 trillion. To be included in the top 1 percent of returns for 2011 required an AGI of $388,905.
  • Individual Noncash Contributions, 2011: For tax year 2011, there were more than 22 million individual taxpayers who reported a total of $43.6 billion in deductions for noncash charitable contributions. About a third (7.5 million) of these taxpayers reported nearly $39 billion in deductions for charitable contributions of $500 or more.
  • Individual Foreign-Earned Income and Foreign Tax Credit, 2011: Nearly 450,000 U.S. taxpayers reported $54 billion of foreign-earned income for tax year 2011. This represented growth in real terms of over 32 percent since the last study in 2006.

The Statistics of Income Bulletin is available for download at IRS.gov/taxstats. Printed copies of the Statistics of Income Bulletin are available from the Superintendent of Documents, U.S. Government Printing Office, P.O. Box 371954, Pittsburgh, PA 15250-7954. The annual subscription rate is $67 ($93.80 foreign); single issues cost $44 ($61.60 foreign).

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THE HOME OFFICE DEDUCTION

by Richard S. Schwartz CPA CVA

Every tax season, I have several clients that I meet with who excitedly inform me that they have finally purchased a new home.  And often times, the next bit of information they communicate to me is that the new house has a home office.  However, having a room in the house to do work in versus using a dedicated area of the home that qualifies as a deductible home office are often two different things.  

In order to meet the rules as a qualifying home office resulting in a business deduction on your personal tax return, the home office space must be a separate section of your home used regularly and exclusively in connection with a trade or business.  The qualifying space typically would be a separate and identifiable room within your home.  However, the qualifying space could also be a section of a room, whether visibly partitioned off from the remainder of the room or not, as long as it is clearly distinguishable as being set aside for business purposes.  A common example of this setup would be a radiologist performing teleradiology services for a hospital in the corner of a second bedroom.

Once you have determined that you have a qualifying space set aside for the home office, the next two criteria are key to satisfy the home office rules:  regular and exclusive use.  The space must be used on a regular basis.  This does not necessarily mean that the office must be used daily, but it should be used on a continual basis throughout the year (or period claimed as a home office).  Occasional and infrequent use of the room would not meet the home office qualification.  The second qualification, exclusivity, requires that the space be used exclusively for business and not for personal purposes.  If the space is mixed use, both personal and business, then this portion of your home would not qualify as a home office.  Placing your laptop on the family room coffee table to do patient billings while watching TV would certainly not meet any home office rules, even though your primary intent, billing patients while working at home, is connected to your business.

As noted above, the use of the home office must be in connection with your trade or business.  Additionally, having a second or multiple business locations to see patients or customers does not disqualify the deduction for your home office.  You may be a dentist with two office locations, one being in the basement of your residence and the other being in a neighboring town.  Having the second location does not disqualify the home office deduction.  Being connected with your trade or business extends to administrative work as well.  Using your home office to do your patient scheduling and billing, and to maintain your accounting and recordkeeping also qualifies the home office for business use – even if you see no patients at your home office but have office visits at another location such as the hospital of clinic.

Currently there are two ways to determine the dollar amount of your home office deduction.  Taxpayers can either calculate a percentage of their true costs or they can use the new Simplified Home Office Deduction Method.  Using the percentage of actual cost method, the taxpayer would determine the deduction by dividing the square foot area of the home office by the total square foot space of the entire home.  The home office deduction is calculated by totaling indirect home expenses such as mortgage interest (or rent if the home is not owned), real estate taxes, homeowners insurance, utilities and maintenance costs multiplied by the calculated square foot percentage.  Additionally, the home office calculation may include direct expenses as well as a deduction for tax depreciation (amortizing the original cost of your home over a period of years).  

Or, beginning in 2013, the IRS allows taxpayers to use the Simplified Home Office Deduction Method.  Electing this second method, taxpayers determine their deduction based upon $5 per square foot of home office space, not to exceed 300 square feet, or a $1,500 total deduction.  This new method certainly simplifies the calculation of the deduction and the recordkeeping required, but typically will result in a lower deduction for taxpayers.  Using either method, taxpayers may also qualified for multiple home offices in the same home if separate home office spaces exist and both qualify.  Examples would be each spouse utilizing separate home office spaces or if separate spaces exist for separate businesses.

One key qualification to be aware of if you are an employee is that the home office must be for the convenience of the employer.  Employees that do work in their “home office” late at night or during the weekend, will not qualify for a home office deduction if they also have a place to do this work at the employer’s office, but choose to do the work at home rather than at their employer’s office.  If you are a self-employed individual taking the deduction, you have more flexibility with meeting the rules when another job site exists in addition to your home office.

When you sell your house, be aware there could be tax consequences related to a sale when you have had a home office deduction claimed on your previous years’ tax returns.  Although the home office that is included within the dwelling of your home will fall under the capital gain home exclusion rules, any depreciation expenses relating to the prior years’ home office deductions, whether actually taken on previous years’ tax returns or not, would be included as income and taxed federally at a 25% tax rate, and taxed at the state level as well when the home is sold.  One final note, if the home office is a separate dwelling unit from the home such as a converted barn or detached garage, additional taxes from the home sale could exist as well in addition to any depreciation being recaptured as income.  And anyone using the Simplified Method has no depreciation to "recapture".      

But don’t think the IRS won’t question the validity of such a deduction if you are ever audited.  Keeping good receipts as well as taking a picture of the home office space and keeping it with your tax records will go a long way in substantiating and qualifying your home office deduction, and in giving you peace of mind as well.  If you meet the rules, claim the deduction.  The tax benefits relating to a qualified home office deduction on your tax return could be substantial, depending upon the size of the space, percentage of use and the resulting dollar value of the deduction claimed.  In addition to federal and state taxes saved resulting from the home office deduction, if you are self-employed the tax savings will also include self-employment taxes.  Thus, if you meet the rules, this deduction is one not to be missed. 

About the Author

Richard S Schwartz, C.P.A., C.V.A., received a B.A. in Economics from Brandeis University in 1985 and an M.S. in Accounting from the Graduate School of Professional Accounting at Northeastern University in 1990.  Prior to joining his brother Andrew at Schwartz and Schwartz,  P.C. in 1993, he worked for the international accounting firm PricewaterhouseCoopers, LLP, in their Emerging Business Services Group. Since joining Schwartz and Schwartz, P.C. he has worked with individuals providing tax expertise as well as small business owners providing both tax and accounting guidance to help their businesses grow.  In 2006, Rick earned the designation of Certified Valuation Analyst from the National Association of Certified Valuation Analysts (NACVA).

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TAX AND FINANCIAL PLANNING CALENDAR FOR JULY 2014

Month

Income Taxes

Saving and Investing

 

July

  • If you changed jobs, give one of our CPAs a call to discuss filling out new W-4 Forms
  • Now's the time to work through your 2014 income tax projection, especially with all the new tax increases that took effect in 2013.
  • Update your monthly cash flow budget
  • If your Keogh or Solo 401(k) accounts are worth more than $250,000, or if you have employees in your plan, Form 5500-EZ due by 7/31/14
  • Review, update or create your healthcare proxy.  Need Help?.

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2013 & 2014 TAX FACTS

  • For 2013, the standard deduction for a single individual is $6,100 and for a married couple is $12,200. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes (or sales taxes), real estate taxes, mortgage interest, charitable contributions, and unreimbursed employee business expenses.
  • For 2013, the personal exemption is $3,900. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. 
  • The maximum earnings subject to social security taxes is $117,000 for 2014, up from $113,700 in 2013.
  • The standard mileage rate is $.56 per business mile as of January 1, 2014, down from $.565 for 2013.
  • The maximum annual salary deferral into a 401(k) plan or a 403(b) plan is $17,500 in 2013 and 2014.  And if you'll be 50 or older by December 31st, you can contribute an extra $5,500 into your 401(k) or 403(b) account that year.
  • The maximum annual contribution to your IRA is $5,500 for 2013 and 2014.  And if you turn 50 by December 31st, you can contribute an extra $1,000 that year.  You have until April 15, 2015 to make your 2014 IRA contributions. 

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This Month's Topics

Schwartz Uncovers Metric That Is A 79% Predictor Of Gross Revenue For General Dentists

Spring 2014 Statistics Of Income Bulletin Now Available

The Home Office Deduction

The FICA Refund for Medical Residents 

2013 & 2014 Tax Facts

Tax and Financial Planning Calendar for July 2014

 

NEWSLETTER ARCHIVES
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WHAT'S NEW WITH THE FICA REFUND?

In a shocking development, the IRS recently announced that they will be honoring the FICA tax refunds submitted by residency programs and individual doctors.  The catch is that only FICA taxes paid prior to 4/1/05 qualify.

For more information, go to our April 2010 Newsletter, our January 2009 Newsletter, or our February 2001 Newsletter or read through the IRS' Chief Counsel Advice Memorandum on this issue.

Let's work together to keep current on this hugely valuable tax break.  Please post whatever you read or hear regarding this FICA issue on our new Message Board we set up just for this topic.

 

 
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